Officials speak out on currency run

  • 2009-03-12
  • By Adam Mullett
VILNIUS - Hundreds of people exchanged litas for other currencies over the weekend following fears of devaluation of Lithuania's currency, prompting the head of the Bank of Lithuania (LB) to say rumors the national currency would be devalued are irresponsible.
LB head Reinoldijus Sarkinas said that the currency would remain stable until euro adoption, which many expect to happen in 2011.

"The most important thing is that there is no basis for such a measure, and Lithuania would not solve any problems by such a move. Lithuania has obliged to maintain stable litas-to-euro rate until the adoption of the single currency, and this is exactly what will be done," Reinoldijus Sarkinas said on Lietuvos Radijas.
"All those various rumors, truly irresponsible, I would say, even malignant statements about potential devaluation do harm to people who trust those rumors and rush to banks to buy foreign currency," he said.
Lithuanian Prime Minister Andrius Kubilius reiterated that the government did not plan to devalue the litas and called on the population not to trust devaluation rumors.

"I can repeat what I have said many times before: the litas has been stable and will remain stable. All doubts [about the litas' stability] are completely groundless. Trusting in all sorts of rumors is an absolutely absurd thing to do, and it brings losses to people who believe in [such rumors]," Kubilius said.
The prime minister underlined that his government "has not, is not, and will not plan to consider any issues related to changes in its monetary policy."

Suggestions on March 5 that there could be devaluation on the road to euro adoption made by Kestutis Glaveckas, the chairman of the parliament's Budget and Finance Committee, sparked panic that led to large amounts of currency being changed for more stable currencies.

"I think that a panic is being created without any grounds and that [some are] trying to solve questions outside their competence. The litas-euro exchange rate has been fixed, and Lithuania has committed itself to keeping it stable until euro adoption. There is no ground for changing this rate," Sarkinas said.
Gitanas Nauseda, chief analyst at SEB Bankas, also dismissed the rumors of devaluation.
"I don't know why Glaveckas brought this up now when it is an issue for four or five years in the future," he said.

Nauseda told The Baltic Times that he thinks the country can convert to the euro without the threat of devaluation, saying that there are enough foreign currency reserves to sustain the peg.
The Lithuanian national currency is pegged to the euro under a currency board arrangement at a fixed rate of 3.45 litas to the euro.

"Our money in circulation is covered by forex and gold at 100 percent and even higher. So if Lithuanian companies fly from litas and change the foreign currency, it means that the monetary base will become more narrow," Nauseda told The Baltic Times.

Nauseda said it's possible to change the value of the currency, but that it would be a political decision, not out of necessity. He said the decision could have catastrophic economic consequences.
Lithuanian companies and people and households are indebted in foreign currencies very heavily. Even our state is in debt in foreign currency. You can imagine the problems if this changes 's they will get the same amount of litas because income comes in the form of taxes or people paying for services, but the debt will be much higher 's it would lead to the bankruptcy of many people in the country."

Lithuania's official international reserves fell by 290.4 million litas, or 1.9 percent, in February from January to 14.7 billion litas (4.26 billion euros), the central bank reported.
The decline was due to decreases of 257.7 million litas in the Bank of Lithuania's external liabilities, of 199 million litas in central government deposits and of 130 million litas in the amount of currency in circulation.
This was partly offset by increases of 197.4 million litas in deposits of other monetary financial institutions and of 94 million litas in other factors, the central bank said.